Public investment spending multipliers revisited: The role of public production1

This paper revisits the issue of the public investment spending multiplier by relaxing the commonly made counter-factual assumption that public spending translates one-to-one to effective supply of public infrastructure. Instead , we assume that public infrastructure is the outcome of public production , in the sense that, in order to provide it, the government has to use inputs like public employees, goods/services purchased from the private sector, and some form of capital. Building upon the canonical neoclassical growth model, we show that the public investment spending multiplier becomes much smaller, other things equal. JEL classification: E62, E23, H54